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     Apr 1, '14

The really rich do spend
By Martin Hutchinson

Thomas Piketty's Capital in the Twenty-First Century has received rave reviews among the sort of commentators who are looking always for reasons to dump capitalism in the dustbin of history and resuscitate the Marxism they enjoyed in college (there are a lot of these people). His central thesis is that if the return on capital exceeds the growth rate, then the rich get richer and society bifurcates ad infinitum, with capital owners and those controlling capital resources impoverishing the rest of us.

It's an enjoyable theory for those that like such things and appears validated by the history of the last quarter century. However, it rests on fallacious economics and is only made

spuriously plausible by the even more fallacious policies currently being pursued by the world's monetary authorities.

Piketty's central thesis that capital accumulates until its owners control everything suffers from a core fallacy: the tendency of capital owners to spend their returns. It's not a new theory; indeed the miserly English King Henry VII over 24 years to 1509 got quite close to Piketty's goal of owning everything in his country by piling up satisfactory returns on his capital (and employing efficient tax gatherers).

Unfortunately, his spendthrift son Henry VIII dissipated the Royal Treasury and even seizing the wealth of the monasteries was not enough to prevent insolvency by the time of his death in 1547. In more modern times, the excess returns on capital have accumulated for only short periods of time and, as we shall see, permanent concentration has never happened and is unlikely to.

Piketty's database is a valuable contribution, available on the Internet on here.

The data can best be considered by examining, not the income share of the top 1%, which includes a lot of doctors, middle-level bankers and other middle-class types, but that of the top 0.01%, who can truly be reckoned as the wealthy. More ...

Martin Hutchinson is the author of Great Conservatives (Academica Press, 2005) - details can be found on the website www.greatconservatives.com - and co-author with Professor Kevin Dowd of Alchemists of Loss (Wiley, 2010). Both are now available on Amazon.com, Great Conservatives only in a Kindle edition, Alchemists of Loss in both Kindle and print editions.

(Republished with permission from PrudentBear.com. Copyright 2005-14 David W Tice & Associates.)




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